[Federal Register Volume 72, Number 243 (Wednesday, December 19, 2007)]
[Notices]
[Pages 71986-71988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-24535]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56956; File No. SR-ISE-2007-110]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to the $1 Strike 
Pilot Program

December 13, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 14, 2007, the International Securities Exchange, LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ISE proposes to expand the $1 Strike Pilot Program (``Pilot 
Program'') and requests permanent approval of the Pilot Program. The 
text of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and http://www.ise.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to expand the Pilot 
Program and to request permanent approval of

[[Page 71987]]

the Pilot Program.\3\ The Pilot Program currently allows ISE to select 
a total of 5 individual stocks on which an option series may be listed 
at $1 strike price intervals. In order to be eligible for selection 
into the Pilot Program, the underlying stock must close below $20 in 
its primary market on the previous trading day. If selected for the 
Pilot Program, the Exchange may list strike prices at $1 intervals from 
$3 to $20, but no $1 strike price may be listed that is greater than $5 
from the underlying stock's closing price in its primary market on the 
previous day. The Exchange also may list $1 strikes on any other option 
class designated by other securities exchanges that employ a similar 
Pilot Program under their respective rules. The Exchange may not list 
long-term option series (LEAPS) at $1 strike price intervals for any 
class selected for the Pilot Program. The Exchange also is restricted 
from listing any series that would result in strike prices being $0.50 
apart.
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    \3\ The Commission approved the Pilot Program on June 16, 2003. 
See Securities Exchange Act Release No. 48033 (June 16, 2003), 68 FR 
37036 (June 20, 2003) (SR-ISE-2003-17). The Pilot Program has 
subsequently been extended through June 5, 2008. See Securities 
Exchange Act Release Nos. 49827 (June 8, 2004), 69 FR 33966 (June 
17, 2004) (SR-ISE-2004-21) (extending the Pilot Program until August 
5, 2004); 50060 (July 22, 2004), 69 FR 45864 (July 30, 2004) (SR-
ISE-2004-26) (extending the Pilot Program for 10 months until June 
5, 2005); 51769 (May 31, 2005), 70 FR 33232 (June 7, 2005) (SR-ISE-
2005-22) (extending the Pilot Program until June 5, 2006); 53806 
(May 15, 2006), 71 FR 29694 (May 23, 2006) (SR-ISE-2006-20) 
(extending the Pilot Program until June 5, 2007); and 55715 (May 7, 
2007), 72 FR 26854 (May 11, 2007) (SR-ISE-2007-26) (extending the 
Pilot Program until June 5, 2008).
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    The Exchange proposes to expand the Pilot Program to allow ISE to 
select a total of 10 individual stocks on which an option series may be 
listed at $1 strike price intervals. Additionally, ISE proposes to 
expand the price range on which it may list $1 strikes from $3 to $50. 
The existing restrictions on listing $1 strikes would continue, i.e., 
no $1 strike price may be listed that is greater than $5 from the 
underlying stock's closing price in its primary market on the previous 
day, and ISE is restricted from listing any series that would result in 
strike prices being $0.50 apart.
    As stated in the Commission order approving ISE's Pilot Program and 
in the subsequent extensions of the Pilot Program,\4\ ISE believes that 
$1 strike price intervals provide investors with greater flexibility in 
the trading of equity options that overlie lower priced stocks by 
allowing investors to establish equity options positions that are 
better tailored to meet their investment objectives. The Exchange 
states that its member firms representing customers have repeatedly 
requested that ISE seek to expand the Pilot Program, both in terms of 
the number of classes on which an option series may be listed at $1 
strike price intervals and the range in which $1 strikes may be listed.
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    \4\ See id.
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    With regard to the impact on systems capacities, ISE's analysis of 
the Pilot Program shows that the impact on the automated systems of 
ISE, the Options Price Reporting Authority (``OPRA''), and market data 
vendors has been minimal. The Exchange analyzed the quoting activity 
for all classes selected for the Pilot Program as a percentage of all 
quoting activity for all classes being quoted during the specified 
number of months.\5\ The Exchange concluded that, prior to the 
implementation of the Pilot Program in May 2003, the number of Best 
Bid/Offer (``BBO'') quotes sent to OPRA in the five classes selected 
for the Pilot Program represented approximately 0.47% of all BBO quotes 
sent by the Exchange.\6\ As of April 2007, the BBO quote share in the 
five classes selected for the Pilot Program remained below May 2003 
levels in all months analyzed by the Exchange, with the exception of 
one month, February 2005.\7\ The Exchange notes that these statistics 
may overstate the contribution of $1 strike prices because these 
figures also include quotes for options series listed in intervals 
higher than $1 (i.e., $2.50 strikes) in the same option classes. Even 
with the non-$1 strike series quotes included in these figures, ISE 
believes that the overall impact on capacity is still minimal. ISE 
represents that is has sufficient capacity to handle an expansion of 
the Pilot Program, as proposed.
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    \5\ See Securities Exchange Act Release No. 55715 (May 7, 2007), 
72 FR 26854 (May 11, 2007) (SR-ISE-2007-26), Exhibit 3, Pilot 
Program Report (providing empirical analyses of the impact of the 
Pilot Program on the capacity of automated systems during years 2003 
to 2007).
    \6\ Id.
    \7\ Id.
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    The Exchange believes that the Pilot Program has provided investors 
with greater trading opportunities and flexibility and the ability to 
more closely tailor their investment strategies and decisions to the 
movement of the underlying security. Furthermore, the Exchange has not 
detected any material proliferation of illiquid option series resulting 
from the narrower strike price intervals. For these reasons, ISE 
requests that the Pilot Program be approved on a permanent basis.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder and, in particular, 
the requirements of Section 6(b) of the Act.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
requirements of Section 6(b)(5) of the Act,\9\ in that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to prevent fraudulent and manipulative acts, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Exchange believes that expanding the Pilot Program will 
result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment decisions in a greater 
number of securities and for a more extended period of time than 
currently permitted.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited comments on the proposed rule change 
and has not received any unsolicited written comments from members or 
other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which ISE consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing,

[[Page 71988]]

including whether the proposed rule change is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-ISE-2007-110 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-ISE-2007-110. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2007-110 and should be 
submitted on or before January 9, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-24535 Filed 12-18-07; 8:45 am]
BILLING CODE 8011-01-P